September 26, 2018

The state is seeking 1,100 megawatts of offshore wind
capacity to commence construction before federal tax credits expire.

The New Jersey Board of Public Utilities voted unanimously
on Monday to open a solicitation for 1,100 megawatts of offshore wind
capacity — the largest single-state offshore wind solicitation in the U.S.
to date.

The new order marks the first step in meeting New Jersey’s
goal to deploy 3,500 megawatts of offshore wind by 2030.

A few days earlier, Governor Phil Murphy called on the New
Jersey Board of Public Utilities (NJBPU) to open two additional 1,200-megawatt
offshore wind solicitations, the first in 2020 and the second in 2022. These
efforts are part of Murphy’s initiative to make New Jersey a 100 percent clean energy state by 2050.

“In the span of just nine months, New Jersey has
vaulted to the front of the pack in establishing this cutting-edge industry,”
said Governor Murphy, in a statement. “We campaigned on rebuilding New
Jersey’s reputation as a clean energy leader and that involves setting an
aggressive timetable on offshore wind.”

The NJBPU’s order allows developers seeking to build
offshore wind facilities in federal waters to submit applications for approval
between September 20, 2018 and December 28, 2018. The board intends to respond
by July 1, 2019, providing developers with sufficient time to qualify for
federal tax credits that expire at the end of next year.

In August, Avangrid and Copenhagen Infrastructure
Partners published
pricing for Phase 1 of the 800-megawatt Vineyard
Wind project off the coast of Massachusetts at $74 per megawatt-hour
in year one, escalating 2.5 percent each year over a 20-year period. In Phase
2, the long-term contract price begins at $65 per megawatt-hour, with a 2.5
percent annual increase. These prices reflect the price of both energy and
renewable energy credits.

The Vineyard Wind bids came in extremely low, thanks in part
to the federal Investment Tax Credit, which is available to large wind
projects that commence construction before the end of the year, said Anthony
Logan, North America wind power analyst at Wood Mackenzie. The latest news out
of New Jersey signals that other states are moving quickly to also take
advantage of the 12 percent ITC.

“We expected after the Vineyard bid, just seeing how much of
a benefit leveraging the ITC could be, that some of these procurements would be
faster than previously anticipated,” said Logan. “And I think we’re seeing
exactly that with New Jersey.”

Wind projects in the U.S. also qualify for the Production Tax Credit, which is based on the amount of
electricity generated by a qualifying energy resource. Logan said the ITC is
proving to be a more compelling incentive than the PTC in the case of offshore
wind, because project costs are so high. A tax credit for the initial
investment, therefore, goes further than a credit for electricity
production.

Logan said this trend raises questions about how much tax
equity appetite will be available among investors next year as a slew of
renewable energy projects — both wind and solar — seek to leverage tax benefits
before they phase out.

U.S. offshore wind is a new area for the financial
community, which presents an additional challenge. Some investors gained
experience with the Block Island Wind Farm off the coast of Rhode Island. But
at just 30 megawatts, the first offshore wind project in the U.S. is tiny
compared to the next generation of U.S. offshore wind projects currently under
consideration.

In addition to New Jersey and Massachusetts, there are big
offshore wind initiatives underway in New
York and Rhode
Island, and growing momentum in North Carolina, Virginia and Maryland.

Wood Mackenzie projects the U.S. offshore market will see an
annual compound growth rate of more than 50
percent through 2026. However, WoodMac continues to revise its forecast up
in the near term as more states position themselves to take advantage of the
ITC, said Logan.

He added that recent state announcements are pushing the
U.S. across the threshold needed to develop a robust offshore wind supply
chain. That will trigger a lot of “jockeying” for first-mover advantage among
suppliers, Logan said.

“I expect supply chain bid pricing to be extremely low,
which will have positive knock-on effects on overall state-level bid pricing,”
he added.

A robust supply chain is precisely what New Jersey
wants to foster.

“The opening of the 1,100-megawatt window, coupled with the
governor’s announcement for the deployment schedule for the full 3,500-megawatt
solicitation, provides unparalleled certainty and incentive for developers and
manufacturers to anchor a supply chain right here in New Jersey that
can serve the entire Eastern Seaboard,” said NJBPU President Joseph Fiordaliso.

The NJBPU will issue a guidance document that provides more information on
the new solicitation and helps developers calculate net economic benefits.
According to a recent report by the advocacy group Environmental Entrepreneurs,
offshore wind developments in five East Coast states — New York, New Jersey,
Virginia, North Carolina and South Carolina — could produce economic benefits
totaling $3.6 billion.